Those holding Kingwisoft Technology Group Company Limited (HKG:8295) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 79% share price decline over the last year.

Even after such a large jump in price, Kingwisoft Technology Group's price-to-sales (or "P/S") ratio of 0.1x might still make it look like a strong buy right now compared to the wider Capital Markets industry in Hong Kong, where around half of the companies have P/S ratios above 2.2x and even P/S above 10x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

What Does Kingwisoft Technology Group's Recent Performance Look Like?

Recent times have been quite advantageous for Kingwisoft Technology Group as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Kingwisoft Technology Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Kingwisoft Technology Group's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Kingwisoft Technology Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 45% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 37%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Kingwisoft Technology Group's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Shares in Kingwisoft Technology Group have risen appreciably however, its P/S is still subdued. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Kingwisoft Technology Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 2 warning signs for Kingwisoft Technology Group that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.